Operating Environment for IOCs in Kenya

Absence of clear regulatory framework

As of November 2013, Kenya has no clear regulatory framework governing its oil sector (partly due to its drafting of a new energy bill[1]) and regulations for its natural gas sector are omitted.[2]

As a result, Kenyan energy industry consultant Eugene Obiero predicts that investors will become increasingly dependent on industry gatekeepers.[3] According to Eugene Obiero, these gatekeepers would be "well-connected business stakeholders or policy-makers who wield influence over energy sector licensing, regulations, and policy" and would include members of the National Fossil Fuels Advisory Committee (NAFFAC) and senators of the oil-producing regions.[4]

In July 2013, Minister of Energy Davis Chirchir stated that some oil companies were reluctant to prospect for oil and gas for fear of discovering gas without a legal and fiscal framework to commercialise it.[5] According to an article by Pasatimes, oil executives attending the Economist’s East Africa Summit in Kigali on 7 December 2012 cited government unpredictability as the biggest threat to doing business in the region.[6] In this context, Tim O'Hanlon, Tullow Oil's vice president for African business, also stated that: “The biggest threat to business is governments changing the goal posts. In our game, everything is a risk. Tax regimes and laws are changing overnight. To us, this is as risky as drilling a dry well.”[7]

Ease of doing business

In the World Bank's projected Ease of Doing Business Ranking for the year 2014, Kenya came 129th out of 189 countries, down from 122nd place in 2013.[8] In the category of enforcing commerical contracts, paying taxes (including the size of tax payments and the administrative burden of paying taxes) and electricification, Kenya came in the 151st, 166th and 166th place respectively.[9] On average, registering a company in Kenya takes 10 administrative steps over 32 days, compared to seven steps over 30 days in Sub-Saharan Africa and five steps over 11 days in OECD countries.[10]